TIDMIAT
LEGAL ENTITY IDENTIFIER: 549300YM9USHRKIET173
Invesco Asia Trust plc
Annual Financial Report Announcement for the Year Ended 30 April 2022
This announcement contains regulated information
Investment Objective
The Company's objective is to provide long-term capital growth and income by
investing in a diversified portfolio of Asian and Australasian companies. The
Company aims to achieve growth in its net asset value (NAV) total return in
excess of the Benchmark Index, the MSCI AC Asia ex Japan Index (total return
net of withholding tax, in sterling terms).
Financial Information and Performance Statistics
The benchmark index of the Company is the MSCI AC Asia ex Japan Index (total
return, net of withholding tax, in sterling terms)
Total Return Statistics(1) with dividends reinvested
Change for the year (%) 2022 2021
Net asset value ('NAV')(2) -6.7 56.4
Share price(2) -10.0 58.5
Benchmark Index(3) -12.9 34.8
Capital Statistics
At 30 April 2022 2021 change %
Net assets (£'000) 252,176 281,252 -10.3
NAV per share(2) 377.21p 420.70p -10.3
Share price(1) 332.50p 386.00p -13.9
Benchmark index (capital) 1,023.11 1,195.23 -14.4
Discount(2) per ordinary share: (11.9)% (8.2)%
Average discount over the year(1)(2) (9.5)% (10.7)%
Gearing(2):
- gross 2.2% 0.7%
- net 1.6% nil
- net cash nil (0.9)%
Revenue Statistics
Year Ended 30 April 2022 2021 change %
Income (£'000) 6,228 5,600 +11.2
Net revenue available for ordinary shares (£'000) 4,469 3,863 +15.7
Revenue return per ordinary share 6.68p 5.78p +15.7
Dividends per share(4):
- first interim 7.70p 6.70p
- second interim 7.60p 8.40p
Total dividends 15.30p 15.10p +1.3
Ongoing charges ratio(2) 0.97% 1.00%
(1) Source: Refinitiv.
(2) Alternative Performance Measure (APM). See Glossary of Terms and
Alternative Performance Measures section in the Annual Financial Report for
details of the explanation and reconciliations of APMs.
(3) Index returns are shown on a total return basis, with dividends
reinvested net of withholding taxes.
(4) The Company's dividend policy aims to pay a regular six-monthly
dividend calculated at 2% of the Company's NAV on the last business day of
September and February. Dividends are paid from a combination of the Company's
revenue reserves and capital reserves, as required.
Chairman's Statement
Highlights
. Strong relative performance over 1,3,5 and 10 years.
. Investment Style: "Valuation not value".
. Asian markets look cheap, for good but probably temporary reasons
. Appointment of Fiona Yang as Co-Portfolio Manager of the Company.
. Appointment of Myriam Madden and Sonya Huen Rogerson as Non-Executive
Directors of the Company.
After spectacular performance in the Company's year to 30 April 2021 (NAV up
56.4% vs the MSCI AC Asia ex Japan Index up 34.8%), I referred at the interim
stage to a period of consolidation. The subsequent six months to 30 April 2022
have seen stock markets fall in response to Russia's invasion of Ukraine, a
surge of Covid-19 within China and a sharp rise in inflation in many countries.
So it was a surprise even to me that our NAV was down only 1.2% (total return
basis, in sterling for the six months to 30 April 2022). That compares
favourably to our benchmark index which returned -6.7% (MSCI AC Asia ex-Japan,
total return, net of withholding tax, in sterling terms). Your share price
delivered a total return of -5.1% as the discount widened from 7.6% to 11.9%.
For the full year to 30 April 2022, NAV total return was -6.7% and the share
price total return was -10.0%, both outperforming the Index total return of
-12.9%. The average discount of the share price to net asset value was 9.5%
over the year, within the Board's tolerance but higher than we would prefer.
Attribution numbers show that the year's outperformance came mainly from stock
selection. Ian Hargreaves and Fiona Yang review performance in detail in their
Portfolio Managers' Report.
As indicated at the interim stage, Fleur Meijs has taken on additional
responsibilities at UWC (United World College, an international education
group) and will step down from our Board on 2 August 2022. We wish her well in
her new, time-consuming role. Myriam Madden, who joined the Board on 4 November
2021, will take over from Fleur as Audit Chair. Owen Jonathan, our Senior
Independent Director, will retire at the forthcoming Annual General Meeting
('AGM') after serving nine full years. We will miss his wise counsel,
particularly on Hong Kong, China and general legal matters. Fleur and Owen have
served us strongly over their respective terms and leave with the Company in
very good shape. Vanessa Donegan will take over as Senior Independent Director
and as Chair of the Remuneration Committee. We are delighted that Sonya Huen
Rogerson joined us on 26 July 2022 as a Non-Executive Director. Sonya is an
International General Counsel at Novartis and previously worked as General
Counsel and Head of Legal and Compliance at Bank of China (UK). After the AGM
the Board will settle back to its normal number of four Directors.
Shareholders will know that we believe that the discount is determined by a
combination of demand for Asian equity investment vehicles, the Investment Case
for Invesco Asia and the Corporate Proposition that we offer. In order to
stimulate more demand for the Company's shares, we aim to provide a strong
investment case and a strong corporate proposition at the same time.
The Investment Case
The investment case rests on accessing the attractions of Asian equity markets
through the institutional expertise of Ian's team at Invesco. The team is
strong and our new Co-Portfolio Manager, Fiona, relocated to Invesco's
Singapore office in February. She works very closely with Ian both on our
portfolio and in meeting shareholders and potential investors. Their investment
process can be summarised as "valuation not value" and has been very successful
with institutional clients such as pension funds and sovereign wealth
investors. In times like these of great change, we would argue that this
forward-looking active approach (as opposed to a backward-looking index or
passive style) is exactly what is needed. The team have delivered very strong
relative performance for shareholders over 1,3,5 and 10 years, as shown in the
Annual Financial Report.
Like many professional consultants and clients, we, as independent directors,
look for talented stock pickers, a robust process and consistent outperformance
in our investment manager. We believe we have all three in Ian, Fiona and the
team at Invesco.
The Corporate Proposition
The Company's Corporate Proposition was first introduced in the Half-Yearly
Financial Report to 31 October 2018. Since then the Board has continued to
review and adopt measures intended to create additional demand for the
Company's shares, both from existing and new shareholders, and to reduce the
discount. We have been careful to ensure that the measures chosen are in the
best interests of all shareholders. The intention is that the gains from each
will combine to make the corporate proposition as compelling as the investment
case.
There are multiple elements to our Corporate Proposition, including:
1. Continuation Vote: Every three years the future of the Company is subject
to a continuation vote, the next one is due at the forthcoming AGM. We believe
that the outlook for the Company is strong and so unanimously recommend that
shareholders vote for continuation.
2. Enhanced dividend policy: The Board introduced a new enhanced dividend
policy in August 2020 which aims to pay, in the absence of unforeseen
circumstances, a regular six-monthly dividend equivalent to 2.0% of the
Company's NAV, calculated on the last business day of September and February.
The dividends will be paid to shareholders in November and April. This means
that the two interim dividends will not be subject to a resolution at the AGM
but that the distribution policy as a whole will be put to shareholders at each
AGM. This year the first interim dividend of 7.70p was paid to shareholders on
25 November 2021 and a second interim dividend of 7.60p was paid to
shareholders on 26 April 2022. This gave a total distribution of approximately
4.0% of NAV over the year and represents a 4.6% dividend yield on the closing
share price on 30 April 2022. Please note that the policy of paying out
approximately 4.0% of NAV means that dividend payments can fall in down years.
At the time of writing this looks likely to be the case for the forthcoming
year.
3. Performance Conditional Tender: We introduced a performance conditional
tender offer in August 2020 through which the Board has undertaken to effect a
tender offer for up to 25.0% of the Company's issued share capital at a
discount of 2.0% to the prevailing NAV per share (after deduction of tender
costs) in the event that the Company's NAV cum-income total return performance
over the five year period to 30 April 2025 fails to exceed the Company's
comparator index, the MSCI AC Asia ex Japan Index (net of withholding tax,
total return in sterling terms) by 0.5% per annum over the five years on a
cumulative basis. Shareholders already have the opportunity to vote on the
continuation of the Company every three years, but the Board believes that also
providing shareholders with the option to tender a proportion of their shares
for a cash price close to NAV, if the Company underperforms, constitutes a
pragmatic and attractive initiative, particularly if the shares were to be
trading at a material discount at the time.
4. Environmental, Social and Governance Matters (ESG): The Board recognises
the importance of ESG considerations in delivering value to shareholders and in
the Annual Financial Report we explain our approach. We continue to monitor
closely developments in this space and noting the growing public discourse on
climate change we have asked the Manager to highlight examples of holdings in
companies that are helping facilitate the journey towards Net Zero Alignment
('NZA'). The Manager is well-placed with adequate resources to assess the risks
and opportunities which may result from accelerating ESG-driven change.
The Manager's Global ESG function, based in Henley, inputs into the research
process and provides a formal ESG oversight process including meetings with the
Portfolio Managers and analysts to review the portfolio from an ESG
perspective. The Manager is a signatory of the Financial Reporting Council's
Stewardship Code and maintains an active seat on the Board of the UK
Sustainable Investment and Finance Association. In addition, the Manager
achieved an 'A+' rating for its overall approach to responsible investment
(Strategy and Governance) for the last four years as well as achieving an 'A'
or 'A+' across all other categories in the latest available assessment period
from Principles of Responsible Investment ('PRI'). In 2019 the MSCI upgraded
the Manager's ESG rating from BBB to A and as a signatory and discloser to the
Carbon Disclosure Project it supports enhanced, market-wide environmental
disclosure and reports annually on its climate change management and
performance, including comprehensive emissions accounting.
5. Access to Invesco Expertise: Ian Hargreaves is Invesco's lead portfolio
manager of Asian accounts for institutional investors and manages over £3
billion of institutional assets. Fiona Yang, in our opinion, is a future star
in their team. Invesco Asia Trust plc is the only vehicle available to UK
retail investors who wish to access their track record. They manage it with a
high degree of commonality to their institutional portfolios although they also
add the best smaller company opportunities.
6. Engaging more individual shareholders: We are encouraged that an
increasing proportion of our shareholders are individuals, with the proportion
of investors who hold shares of Invesco Asia Trust plc via execution-only
platforms continuing to increase. The Board aims to engage more directly with
individual investors. Working closely with the Manager, we continue to raise
the profile of the Company through new direct investor information, commentary
and events, which will provide access to the thoughts and views of Ian and
Fiona, their team and the Directors. These activities complement the ongoing
engagement with a broad range of professional investors. Please take a look at
the video clip of Vanessa Donegan interviewing Fiona Yang; this video and
others can be found on our homepage www.invesco.co.uk/invescoasia where you can
also find presentations, read updates or register to receive printed copies of
the Half-Yearly and Annual Financial Reports. You can also see third party
research (by Kepler Partners) and monthly factsheets on the Company's website.
Shareholders can also contact us by email at investmenttrusts@invesco.com.
7. Meeting the Directors and Managers: One of the main attractions of an
investment trust over a unit trust or OEIC is that all shareholders have the
opportunity of meeting the Directors and the Managers every year at the AGM.
This year's meeting will be held in person at Invesco's London office at 12
noon on Thursday 8 September 2022. As well as the Company's formal business,
there will be a presentation from Ian and Fiona, the opportunity to ask
questions to the Portfolio Managers and Directors and then to chat informally
with all of us over lunch. Shareholders may bring a guest to these meetings.
For me this is one of the highlights of being Chairman, I look forward to
meeting as many of you as possible. For those unable to make it in person, we
will record a special version of the presentation and post it onto our website
after the AGM. Shareholders wishing to lodge questions in advance of the AGM
should do so by email to the Company Secretary at investmenttrusts@invesco.com
or, by letter, to 43-45 Portman Square, London W1H 6LY.
8. Ongoing Charges and Fees: As a Board we are responsible for managing the
level of charges to shareholders. Our intention is to seek to reduce gradually
the level of ongoing charges over time. The main component of the 0.97% p.a.
ongoing charge is the investment management fee paid to Invesco. The investment
management fee is 0.75% on assets up to £250m reducing to 0.65% on net assets
over this amount.
9. Gearing: The Company intends to use gearing (or borrowings) actively to
take advantage of its closed-end structure. At the year end the Company had net
gearing of 1.6% having started the year at an overall net cash position of
0.9%. Net gearing ranged from 1.9% to a net cash position of 4.8% over the
year.
10. Directors' Shareholdings: Institutional investors often follow and ask for
information on Directors' holdings of shares in the Company. These are shown in
the Directors' Remuneration Report in the Annual Financial Report and we are
required to notify any changes to the stock market by regulatory announcement.
Additionally, our Portfolio Managers, Ian and Fiona are both shareholders in
the Company and can confirm that their remuneration by the Manager is partly
determined by the performance of the Company.
11. Buyback Authority: The Board has a stated average discount target of less
than 10% of NAV calculated on a cum-income basis (formerly ex-income) over the
Company's financial year, although the Directors are cognisant of the fact that
the Company's share rating at any particular time will reflect a combination of
various factors, a number of which are beyond the Board's control. Share
buybacks will occur where and when we consider (in conjunction with our broker)
that such buybacks will be effective, taking into account market factors and
the discounts of comparable funds.
Update
Since 30 April 2022, the NAV total return has been -0.6%, outperforming the
index return of -2.2%. The share price has returned -0.2% with the discount
narrowing to 11.5%.
Outlook
Asian markets continue to face the headwinds of a stronger dollar and
tightening liquidity in response to accelerating inflationary pressures.
However, there may be light at the end of the tunnel as economic activity in
the region remains stronger than in the developed world, corporate balance
sheets are in good shape and, most importantly, equity market valuations are
looking increasingly attractive, with positive earnings growth for the region
still intact. The catalyst to realise the value on offer is likely to come when
the peak of the US monetary tightening is in sight. In the meantime, relatively
more subdued inflationary pressure across much of Asia gives scope for a less
aggressive interest rate tightening cycle than in many western economies.
Our Portfolio Managers have navigated the shift in investor focus from growth
to value relatively well over the past year. With the sell-off in growth stocks
globally now well advanced, Ian and Fiona have the opportunity to pick up
attractively priced high quality growth stocks, while staying true to their
disciplined focus on valuation, not value. We are still in the downcycle for
Asian earnings revisions as higher input costs get factored into corporate
margins. But as equity markets historically bottom before EPS revisions, we are
starting to see the region and China in particular re-emerging onto the radar
screens of savvy investors.
In their report the Portfolio Managers highlight a more optimistic stance on
China than a year ago. China's macro fundamentals appear to be improving with
adjustments to the authorities' Covid-zero tolerance policy combined with scope
for monetary easing and fiscal support to be deployed to offset growth
headwinds from the extended Covid lockdowns. After sharply underperforming
global markets in 2021 China looks well positioned to play catch-up on the back
of its relative macro resilience, regulatory stabilisation and undemanding
equity valuations.
Neil Rogan
Chairman
1 August 2022
Portfolio Managers' Report Q&A
Portfolio Manager
Ian Hargreaves was promoted to Co-Head of the Asian & Emerging Markets Equities
team in September 2018. Ian manages pan-Asian portfolios and covers the entire
Asian region in his remit. He started his investment career with Invesco Asia
Pacific in Hong Kong in 1994 as an investment analyst where he was responsible
for coverage of Indonesia, South Korea and the Indian sub-continent, as well as
managing several regional institutional client accounts. Ian returned to the UK
to join Invesco's Asian Equities team in 2005, working on the portfolio as part
of the investment team. He was appointed as joint Portfolio Manager in 2011 and
became the sole Portfolio Manager on 1 January 2015, up until the appointment
of Fiona Yang as Co-Portfolio Manager in January 2022.
Portfolio Manager
Fiona Yang joined Invesco in August 2017 and is a member of the Henley-based
Asian & Emerging Markets Equities team. Currently, Fiona is the lead fund
manager on the Invesco Asian Equity Income Fund and provides stock and sector
research covering the wider Asia ex-Japan region with a focus on China H and A
share markets. She started her career with Goldman Sachs in July 2012,
initially within their graduate programme, before becoming a member of their
Asian Equity sales team, where she was a China product specialist. Fiona moved
to Invesco's Singapore office in February 2022, whilst still remaining an
integral part of the Henley-based team. In recognition of her skill, growing
experience and achievements, Fiona was appointed Co-Portfolio Manager of the
Invesco Asia Trust plc in January 2022.
Q How has the company performed in the period under review?
A The Company's NAV total return decreased by 6.7% over the twelve months to
30 April 2022, which compares favourably to the benchmark MSCI AC Asia ex Japan
Index total return of -12.9% (net of withholding tax, in sterling terms).
Portfolio performance has proven to be relatively resilient in a challenging
environment as Asian equity markets have trended lower from their post-pandemic
peak. Market weakness has been largely attributable to China-related concerns,
which have more than offset positive momentum from India and south-east Asian
markets that have benefited from a lifting of Covid-19 restrictions and
vaccination programmes being rolled out. This has seen an unusually large
divergence in performance between the best and worst performing markets in our
region (see below). Stock selection has had significant positive impact on
relative performance, particularly in Hong Kong/China and Indonesia, which has
helped offset the impact of some of our underperformers in India and Taiwan.
The portfolio has also been well positioned for a big rotation in markets, away
from expensive 'growth' towards 'value' stocks and more cyclical areas that
were expected to benefit from reflation and reopening trends. This was
triggered by the US Federal Reserve's hawkish turn in early January, which led
to a rapid upward adjustment in US treasury yields, and some high-profile
earnings disappointments from profitless technology companies in the US.
Market volatility often leads to moments of great opportunity, and the
significant divergence in valuation and performance between different countries
and sectors in Asia continues to provide us with opportunities to reposition
the portfolio in more attractive areas. One consequence of this is that we have
been uncharacteristically active, with higher portfolio turnover than usual, as
we have been adhering to our investment process, selling stocks when they
appear fully valued and investing in companies that are worth more than the
market believes.
Q What have been the biggest contributors?
A The portfolio's exposure to Indonesia - the best performing country in the
region over the period - has been a key driver of performance, with PT Bank
Negara Indonesia Persero the biggest single contributor, while Astra
International and Telkom Indonesia also added significant value. Indonesia is
now one of our biggest overweight positions, with the economy appearing to have
scope for better growth after a weak period. Indian bank ICICI Bank and
conglomerate Larsen & Toubro (L&T) also outperformed notably, supported by the
improved macro backdrop.
In China, wind turbine manufacturer MingYang Smart Energy made strong gains in
the first half of the period, as an expected beneficiary of the authorities'
plans to reduce carbon emissions. Real-estate developers CK Asset and China
Overseas Land and Investment have outperformed in a time of turbulence, with
strong balance sheets leaving them well placed to gain market share from weaker
developers. Other notable contributors included Pacific Basin Shipping, while
Singaporean bank United Overseas Bank and QBE Insurance demonstrated a positive
sensitivity to rising US rates.
Q And detractors?
A Autohome was the biggest detractor, as advertising revenues slowed given the
slowdown in auto sales, while competition between digital media platforms has
intensified. We believe Autohome's competitive advantages remain
underappreciated, with its net cash balance sheet (over 80% of market
capitalisation) and free cash flow generation additional sources of comfort.
Meanwhile, Tencent Music Entertainment lowered its revenue guidance in response
to increased regulation of social entertainment and live streaming, which
fundamentally impacted the original investment thesis, and led us to exit.
Concerns related to collateral damage from over-leveraged Chinese property
developers impacted stocks such as Ping An Insurance, A-Living Smart City
Services, air-conditioning manufacturer Gree Electrical Appliances and fitted
furniture designer and manufacturer Suofeiya Home Collection. We have been
adding on weakness, encouraged by these companies' relatively strong balance
sheets and valuations that appear undemanding given their future growth
prospects.
Other key detractors include LG, with concerns related to portfolio companies'
performance and a restructuring of stakeholders' interests appearing to be
fully priced in, with potential for a narrowing of the discount to NAV.
Meanwhile, Covid-related chip and component shortages have disrupted supply
chains, particularly for miniature lens manufacturer Largan Precision, although
its medium-term outlook remains bright.
Q Are you concerned about the threat of growth slowdown and higher inflation?
A The Russia-Ukraine conflict has complicated central banks' plans to tackle
post-pandemic inflationary pressures via rates hikes, raising concerns that the
US Federal Reserve may have to keep tightening policy, even after growth has
started to slow. Whilst a rising yield environment has historically been tough
for Asian market performance, we remain calm about the prospect.
Firstly, inflation in Asia remains at more comfortable levels. As can be seen
in the chart in the Annual Financial Report, this largely remains - for now - a
developed market problem. Furthermore, compared to when Asian countries last
faced the prospect of tightening conditions in the 'taper tantrum' of 2013,
they are generally much earlier in their economic cycles. Warning signs such as
high credit growth and deteriorating external accounts were, and still are,
absent.
However, the prospect of higher inflation and slower growth has ramifications
for market leadership in Asia, as well as country and sector allocation. In
terms of market leadership, long duration assets have been particularly
vulnerable, but the lower valuation of the portfolio compared to the market has
benefited relative performance.
Higher commodity prices mean energy and commodity producers take a greater
share of consumer wallets at the expense of other industries' revenues and
margins - but there are few winners in this environment. Companies with strong
pricing power should do better, but realistically most companies will feel some
pressure.
We have been evaluating the earnings risk of financials and autos sectors,
where we are overweight. These may struggle in the short-term if risk aversion
takes hold and if there is greater uncertainty over economic growth. However,
financials stand to benefit from rising interest rates, have capital buffers,
and have some support from overprovisioning after being overly cautious during
Covid-19. Growth expectations in Asia also appear less vulnerable, as we
continue to expect a re-opening dividend as Covid becomes endemic. For car
manufacturers, we expect some margin pressure and can foresee big ticket items
like car purchases being delayed if consumers are nervous about the outlook.
However, the sector has yet to fully take advantage of pent-up demand, limited
supplies and low inventory levels, suggesting less need to offer the usual
discounts.
Q Has your country allocation changed at all?
A In terms of country exposure, the main thrust of portfolio activity over the
last twelve months has been to reduce exposure to Taiwan and India, and to
increase China and Indonesia. The current macro backdrop strengthens the case
for this shift, in our view.
In Taiwan, there is a strong underlying technology cycle that is benefiting
some, but the pandemic brought forward an element of demand, with margin gains
likely to be given back, putting valuations at risk in some areas. As such,
we've sold ASUSTeK Computer and reduced exposure to others such as Delta
Electronics and MediaTek. While we remain positive on the medium-term outlook
for India, we have reduced exposure, taking profits from outperformers such as
ICICI Bank and Larsen & Toubro, which have had a very strong run of
performance.
Indonesia shares some of India's positive attributes, but at a lower valuation
(forward price-earnings ratio of 15x vs 22x). Its economy has had a long period
of sub-trend growth, with few signs of economic excess. The Covid-19 pandemic
has had a larger than average negative economic impact, but the economy looks
set for recovery, which the market is only beginning to price in. It is also a
more commodity-orientated economy, and thus relatively better positioned for
this scenario than India, which remains reliant on imports of oil and coal.
Q You have been adding to China?
A For context, the valuation of the Chinese equity market in early 2021 was
well above its historic average, and in some places appeared over-extended.
Some of our holdings in Chinese internet companies had done very well in the
initial pandemic recovery, and we had been taking profits, such that we started
the reporting period with a significant underweight position in Hong Kong/
China.
This felt right to us, not just on valuation terms, but given signs that the
authorities in China were starting to tighten policy. The economy had recovered
strongly from initial Covid-related lockdowns, without the need for significant
stimulus. This enabled policymakers to re-focus on reducing financial risk in
the system, particularly in the real-estate sector. There has also been a
period of regulatory tightening, with an emphasis on the need for more
inclusive economic growth and 'common prosperity'. This surprised the market
negatively and combined with a moderation in economic growth triggered a period
of underperformance for Chinese equities. We have been gradually reducing the
portfolio's underweight position as investment risk appears to be better
rewarded, particularly given government policy is now at the point of reversal.
It is also worth pointing out that while there has been a significant reduction
in the portfolio's underweight position in Hong Kong/China relative to the
benchmark, such that we now have a small overweight, the absolute portfolio
weighting has been fairly consistent, with some change in the stock composition
of this part of the portfolio.
Q Do you have some examples of recently introduced stocks?
A As well as adding to existing Chinese holdings that we like, we have several
new holdings. For example, Hansoh Pharmaceutical which is making good progress
in pivoting away from being a generics manufacturer, to becoming an innovative
R&D-driven company. The industry has endured a challenging couple of years, but
we believe share price weakness has more than priced in the decline in revenues
from generics, with little value being ascribed to a pipeline of new drugs in
development.
We have also introduced Sands China, which along with other Macau gaming stocks
has been deeply out of favour given the pandemic. However, the balance between
risk and reward is now skewed to the upside, in our view, with concerns over
concession renewals and border controls more than reflected in the share price,
as both move ever closer to the point of resolution.
Tingyi is China's largest instant noodle producer and one of the country's
largest beverage companies. The investment case for Tingyi revolves around
continued innovation in their noodle business enabling better growth than the
market expects and improving margins in their beverage business following
previous overexpansion. Tingyi also pay 100% of free cash flow as dividends,
giving the stock an 8% yield, while the company also has a net cash balance
sheet.
Finally, we introduced Worley, an engineering services company with significant
exposure to the energy, chemical and resources mining industries. Worley is
expected to see a healthy recovery in revenues, with medium-term growth
increasingly being driven by energy transition capital expenditure, with
progress towards sustainability targets likely to support a valuation
re-rating.
Q How about China's geopolitical risk premium?
A The conflict in Ukraine has tested the extent of China's "no limits
partnership" relationship with Russia. It is hard to get complete comfort on
geopolitical risk for China, but we feel comfortable being slightly overweight
in the current environment given the attractive valuations on offer. China
could now be said to have a greater degree of leverage in asserting its
conditions for trade and finance relations with Russia, while at the same time
ensuring that it does not jeopardise its relations with Ukraine's key allies,
given that the US, EU and UK remain key export markets.
Regarding tensions between China and Taiwan, we have historically felt that the
probability of some sort of military conflict between the two was very low on a
medium-term view. If anything, we now feel there is even less chance of
anything happening on this front any time soon. China's chief concern is trying
to contain the spread of the omicron variant, with recent lockdowns in major
cities (such as Shanghai and Shenzhen) making the country's 5.5% growth target
for 2022 appear increasingly ambitious. In our view, China will be doing
everything it can to avoid targeted sanctions from the US and Europe.
Q What is the impact of China's zero Covid policy?
A China's determination to adhere to a zero-Covid policy amidst an outbreak of
the omicron variant has raised concerns that extensive lockdowns will lead to a
sharp slowdown in economic activity and presents significant near-term policy
uncertainty. This is the reason we have not gone further in adding to China.
Xi Jinping has closely associated himself with China's initial success in
containing Covid, avoiding the significant death tolls seen elsewhere. Low
vaccination coverage amongst the elderly is a sensitive issue (only half of
over-80s fully vaccinated), with 2022 being an important transition year for
China's leadership team. Encouragingly, there are positive signs from Hong Kong
where domestically sourced vaccines did a good job in keeping hospitalisations
and deaths to bearable levels.
On a 2-3 year view it is easier to get comfort that China will learn to live
with Covid. The key question for us is how much of this is already in the
price. The valuation of China's equity market is near the bottom of its
long-term historic range. Despite widespread lockdowns still being in place,
the authorities have remained committed to an increasingly optimistic 5.5%
growth target. As and when lockdowns are lifted, we can be fairly confident
that a policy response is coming - likely focused on consumption and
infrastructure - and the market will be quick to respond.
Q Can you share any examples of engagements with companies on ESG matters?
A 75% of our company meetings over the last twelve months included engagement
on ESG issues, and it continues to be an integral part of our investment
process. MingYang Smart Energy and Worley make for good examples, details of
which, together with our approach, are provided in the ESG Monitoring and
Engagement section in the Annual Financial report.
Q Have you adjusted the portfolio's gearing?
A The use of gearing is a function of our valuation-led investment process.
This provides an opportunity to increase exposure to the markets when we
believe it is the right time to do so. As can be seen in the chart in the
Annual Financial Report, the valuation of the overall market has moved from
being meaningfully above its long-term historic average in terms of
price-to-book ('P/B'), to a point that is now below that level.
While the portfolio has had a net cash position for much of the period, earlier
this year we decided to add a modest amount of gearing. The other part of our
framework for considering whether to add or reduce gearing is earnings growth
momentum. While we expect some further downward revisions to Asian earnings
expectations, we are closer to an inflexion point, which would warrant
additional gearing.
Q It sounds like you feel now is a good time to be investing in Asia?
A Markets are right to be concerned about inflation, policy normalisation, the
war in Ukraine and the resurgence of Covid-19 in China. However, Asian equity
markets are already a year into their pull back from post-pandemic highs, with
valuations now appearing increasingly attractive in both absolute and relative
terms.
We feel there is a strong case for Asia's discount to US and World markets to
narrow. While fundamentals in developed markets are deteriorating, there is
scope for improvement in Asia. Consumption growth in Asia still lags its
pre-pandemic trend. While there was some fiscal and monetary stimulus in Asian
economies, the policy response was nowhere near as aggressive as that seen in
the US and other developed markets. Most emerging markets took longer to
contain the pandemic and rollout vaccine programmes, with potential for
consumption to pick-up as economies reopen after the pandemic, which is likely
to support corporate earnings and profitability.
Inflationary pressures are less of a concern than in the developed markets,
suggesting greater policy flexibility, which should also be supportive for
markets. The current account balances of Asian economies are also in better
shape than when they last faced the prospect of tightening conditions in the
'taper tantrum' of 2013. We also have a situation where China is close to the
bottom of its cycle, and is starting to ease policy, while the US and other
developed market appear to have reached the peak of the cycle and are starting
to tighten. Combined, we feel this makes Asia an attractive place to be
investing over the medium-term.
Ian Hargreaves & Fiona Yang
Portfolio Managers
1 August 2022
Principal and Emerging Risks and Uncertainties
The Board has carried out a robust assessment of the principal and emerging
risks facing the Company. These include those that would threaten its business
model, future performance, solvency and liquidity. In carrying out this
assessment, the Board together with the Manager have considered emerging risks
such as geopolitical risks, evolving cyber threats and climate related risks.
These risks also form part of the principal risks identified and the mitigating
action are detailed below.
Category and Principal Mitigating Procedures Risk trend
Risk Description and Controls during the
year
Strategic Risk
Market Risk The Company has a diversified Increased
The Company's investments are traded investment portfolio by country and
on Asian and Australasian stock by stock. Its investment trust
markets as well as the UK. The structure means no forced sales need
principal risk for investors in the to take place and investments can be
Company is a significant fall and/or held over a longer term horizon.
a prolonged period of decline in However, there are few ways to
these markets. This could be mitigate absolute market risk
triggered by unfavourable because it is engendered by factors
developments within the region or which are outside the control of the
events outside it. Board and the Manager. These factors
include the general health of the
world economy, interest rates,
inflation, government policies,
industry conditions, and changing
investor demand and sentiment. Such
factors may give rise to high levels
of volatility in the prices of
investments held by the Company.
Geopolitical Risk The Manager evaluates and assesses Increased
Political developments can create political risk as part of the stock
risks to the value of the Company's selection and asset allocation
assets, such as political changes in policy which is monitored at every
the US and Asia regions including Board meeting. This includes
the regulatory tightening by the political, military and diplomatic
Chinese government, which surprised events and changes to legislation.
the market negatively, and more
recently the conflict in Ukraine.
Political risk has always been a
feature of investing in stock
markets and it is particularly so in
Asia. Asia encompasses a variety of
political systems and there are many
examples of diplomatic skirmishes
and military tensions, and sometimes
these resort to military engagement.
Moreover, the involvement in Asia of
the United States and European
countries can reduce or raise
tensions.
Investment Objectives and Strategy The Board receives regular reports Unchanged
The Company's investment objectives reviewing the Company's investment
and strategy are no longer meeting performance against its stated
investors' demands. objectives and peer group, and
reports from discussions with its
brokers and major shareholders. The
Board also has a separate annual
strategy meeting.
Wide Discount The Board receives regular reports Increased
Lack of liquidity and lack of from both the Manager and the
marketability of the Company's Company's broker on the Company's
shares leading to stagnant share share price performance, level of
price and wide discount. share price discount to NAV and
A persistently high discount may recent trading activity in the
lead to buybacks of the Company's Company's shares. The Board has
shares and result in the shrinkage introduced initiatives to help
of the Company. address the Company's share rating
including a performance conditional
tender in 2025 and the enhanced
dividend policy. It may seek to
reduce the volatility and absolute
level of the share price discount to
NAV for shareholders through buying
back shares within the stated limit
(outlined in Resolution 13 in the
Notice of Meeting). The Board also
receives regular reports on
marketing meetings with shareholders
and prospective investors and works
to ensure that the Company's
investment proposition is actively
marketed through relevant messaging
across many distribution channels.
Performance The Board regularly compares the Unchanged
Portfolio Managers consistently Company's NAV performance over both
underperform the benchmark and/or the short and long term to that of
peer group over 3-5 years. the benchmark and peer group as well
as reviewing the portfolio's
performance against benchmark
(attribution) and risk adjusted
performance (volatility, beta,
tracking error, Sharpe ratio) of the
Company and its peers.
ESG including climate risk ESG considerations are integrated as Increased
Risks associated with climate change part of the investment
and ESG considerations could affect decision-making in constructing the
the valuation. portfolio. Such investment decisions
include the transactions undertaken
in the period, the review of active
portfolio positions and
consideration of the gearing
position and, if applicable,
hedging. The process around ESG is
described in the ESG Monitoring and
Engagement section in the Annual
Financial Report.
Key Person Dependency The appointment of Fiona Yang as Decreased
Either or both of the Portfolio Co-Portfolio Manager has mitigated
Managers (Ian Hargreaves and Fiona the risk of key person dependency.
Yang) ceases to be Portfolio Manager Also, the Portfolio Managers work
or are incapacitated or otherwise within and are supported by the
unavailable. wider Invesco Asian and Emerging
Markets Equities team, with Ian
Hargreaves and William Lam as
Co-Heads of this team.
Currency Fluctuation Risk With the exception of borrowings in Unchanged
Exposure to currency fluctuation foreign currency, the Company does
risk negatively impacts the not normally hedge its currency
Company's NAV. The movement of positions but may do so should the
exchange rates may have an Portfolio Managers or the Board feel
unfavourable or favourable impact on this to be appropriate. Contracts
returns as nearly all of the are limited to currencies and
Company's assets are non-sterling amounts commensurate with the asset
denominated. exposure. The foreign currency
exposure of the Company is reviewed
at Board meetings.
Third Party Service Providers Risk
Unsatisfactory Performance of Third Details of how the Board monitors Unchanged
Party Service Providers the services provided by the Manager
Failure by any third-party service and other third party service
provider to carry out its providers, and the key elements
obligations to the Company in designed to provide effective
accordance with the terms of its internal control, are included in
appointment could have a materially the internal control and risk
detrimental impact on the operations management section in the Annual
of the Company and could affect the Financial Report.
ability of the Company to
successfully pursue its investment
policy and expose the Company to
reputational risk. Disruption to the
accounting, payment systems or
custody records could prevent the
accurate reporting and monitoring of
the Company's financial position.
Information Technology Resilience The Board receives regular updates Unchanged
and Security on the Manager's information and
The Company's operational structure cyber security. This includes
means that all cyber risk updates on the cyber security
(information and physical security) framework, staff resource and
arises at its Third Party Service training, and the testing of its
Providers ('TPPs'). This cyber risk security systems designed to protect
includes fraud, sabotage or crime against a cyber security attack.
perpetrated against the Company or As well as conducting a regular
any of its TPPs. review of TPPs' audited service
organisation control reports by the
Audit Committee, the Board monitors
TPPs' business continuity plans and
testing including the TPPs' and
Manager's regular 'live' testing of
workplace recovery arrangements
should a cyber event occur.
Further details on the TPP's
business continuity plans are
detailed below.
Operational Resilience The Manager's business continuity Decreased
The Company's operational capability plans are reviewed on an ongoing
relies upon the ability of its TPPs basis and the Directors are
to continue working throughout the satisfied that the Manager has in
disruption caused by a major event place robust plans and
such as the Covid-19 pandemic. infrastructure to minimise the
impact on its operations so that the
Company can continue to trade, meet
regulatory obligations, report and
meet shareholder requirements.
The Manager has arrangements and
prioritises between work deemed
necessary to be carried out on
business premises and work from home
arrangements should it be necessary,
for instance due to further
restrictions. Any meetings are held
in person, virtually or via
conference calls. Other similar
working arrangements are in place
for the Company's third-party
service providers. The Board
receives regular update reports from
the Manager and TPPs on business
continuity processes.
Viability Statement
The Company is a collective investment vehicle rather than a commercial
business venture and is designed and managed for long term investment. The
Company's investment objective clearly sets out the long-term nature of the
returns from the portfolio and this is the view taken by both the Directors and
the Portfolio Managers in the running of the portfolio. The Company is required
by its Articles to have a vote on its future every three years, the next vote
being at the forthcoming AGM on 8 September 2022. The Directors remain
confident in the Company's Investment Case and Corporate Proposition, as
detailed in the Chairman's Statement to deliver against the Company's
investment objectives. On this basis and notwithstanding the continuation vote
at the forthcoming AGM, the Directors consider that 'long term' for the purpose
of this viability statement is three years, albeit that the life of the Company
is not intended to be limited to this period. After making enquiries and taking
into account the relative outperformance compared to the Company's benchmark
over ten years and in the absence of unforeseen circumstances the Directors
have no reason to believe that such a resolution will not receive shareholder
approval.
In their assessment of the Company's viability, the Directors have performed a
robust assessment of the emerging and principal risks. The Directors considered
the risks to which it is exposed, as set out in the Principal and Emerging
Risks and Uncertainties table above, together with mitigating factors. Their
assessment considered these risks, as well as the Company's investment
objective, investment policy and strategy, the investment capabilities of the
Manager and the business model of the Company, which has withstood several
major market downcycles since the Company's inception in 1995. Their assessment
also covered the current outlook for the Asian economies and equity markets,
especially so during the Covid-19 disruption since March 2020, the ongoing
conflict in Ukraine; the demand for and buybacks of the Company's shares; the
Company's borrowing structure and level of gearing; the liquidity of the
portfolio; and the Company's future income and annual operating costs,
including stressed scenario testing for both income and loan covenants.
Although the current outlook for Asian markets is challenging, the Directors
and the Manager are cautiously optimistic that Asia remains a region with sound
economic and corporate fundamentals. Lastly, whilst past performance may not be
indicative of performance in the future, the sustainability of the Company can
be demonstrated to date by there having been no material change in the
Company's investment objective since its launch in 1995.
The Directors confirm that they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall due
for the three year period from the signing of the balance sheet.
Investments in Order of Valuation
at 30 April 2022
Ordinary shares unless stated otherwise
? The sector group is based on MSCI and Standard & Poor's Global Industry
Classification Standard.
At
Market
Value % of
Company Sector? Country £'000 Portfolio
Taiwan Semiconductor Semiconductors and Semiconductor Taiwan 16,877 6.7
Manufacturing Equipment
Samsung Electronics Technology Hardware and South 15,242 6.0
Equipment Korea
TencentR Media and Entertainment China 14,877 5.8
AlibabaR - ordinary share Retailing China 9,680 3.8
AlibabaR - ADS 717 0.3
10,397 4.1
JD.comR - ordinary share Retailing China 7,848 3.1
JD.comR - ADS 2,359 0.9
10,207 4.0
Housing Development Banks India 8,843 3.4
Finance Corporation
ICICI Bank - ADR Banks India 8,622 3.4
Astra International Automobiles and Components Indonesia 8,111 3.2
AIA Insurance Hong Kong 7,693 3.0
NetEaseR Media and Entertainment China 6,786 2.6
Top Ten Holdings 107,655 42.2
PT Bank Negara Indonesia Banks Indonesia 6,278 2.4
Persero
MingYang Smart EnergyA Capital Goods China 6,004 2.3
POSCO Materials South 5,726 2.2
Korea
QBE Insurance Insurance Australia 5,702 2.2
United Overseas Bank Banks Singapore 5,661 2.2
Ping An InsuranceH Insurance China 5,374 2.1
China Overseas Land and Real Estate Hong Kong 5,042 2.0
Investment
KasikornbankF Banks Thailand 4,991 1.9
CK Asset Real Estate Hong Kong 4,947 1.9
Aurobindo Pharma Pharmaceuticals, Biotechnology India 4,830 1.9
and Life Sciences
Top Twenty Holdings 162,210 63.3
Hyundai Motor - Automobiles and Components South 4,578 1.8
preference shares Korea
Suofeiya Home CollectionA Consumer Durables and Apparel China 4,511 1.8
Gree Electrical Consumer Durables and Apparel China 4,475 1.7
AppliancesA
Uni-President Food, Beverage and Tobacco Taiwan 4,416 1.7
Shriram Transport Finance Diversified Financials India 4,372 1.7
Larsen & Toubro Capital Goods India 4,229 1.6
CK Hutchison Capital Goods Hong Kong 3,771 1.5
Mahindra & Mahindra Automobiles and Components India 3,528 1.4
Dongfeng MotorH Automobiles and Components China 3,525 1.4
Samsonite International Consumer Durables and Apparel Hong Kong 3,424 1.3
Top Thirty Holdings 203,039 79.2
Samsung Fire & Marine Insurance South 3,364 1.3
Korea
Chroma ATE Technology Hardware and Taiwan 3,308 1.3
Equipment
Hon Hai Precision Technology Hardware and Taiwan 3,225 1.3
Industry Equipment
Worley Energy Australia 3,157 1.2
LG Capital Goods South 2,964 1.2
Korea
Telkom Indonesia Telecommunication Services Indonesia 2,737 1.1
MediaTek Semiconductors and Semiconductor Taiwan 2,622 1.0
Equipment
ENN EnergyR Utilities China 2,561 1.0
China BlueChemicalH Materials China 2,531 1.0
Largan Precision Technology Hardware and Taiwan 2,373 0.9
Equipment
Top Forty Holdings 231,881 90.5
Sands China Consumer Services Hong Kong 2,371 0.9
Autohome - ADS Media and Entertainment China 2,140 0.8
MINTH Automobiles and Components Hong Kong 2,126 0.8
Newcrest Mining Materials Australia 2,082 0.8
TingyiR Food, Beverage and Tobacco China 1,884 0.7
Yue Yuen Industrial Consumer Durables and Apparel Hong Kong 1,838 0.7
Hansoh PharmaceuticalR Pharmaceuticals, Biotechnology China 1,801 0.7
and Life Sciences
Beijing Capital Transportation China 1,726 0.7
International AirportH
KB Financial Banks South 1,710 0.7
Korea
Pacific Basin Shipping Transportation Hong Kong 1,409 0.5
Top Fifty Holdings 250,968 97.8
Genting Singapore Consumer Services Singapore 1,237 0.5
HKR International Real Estate Hong Kong 988 0.4
A-Living Smart City Real Estate China 976 0.4
ServicesH
Invesco Liquidity Funds - Money Market Fund Ireland 846 0.3
US Dollar
Delta Electronics Technology Hardware and Taiwan 801 0.3
Equipment
LG Chemical Materials South 769 0.3
Korea
Lime Co.UQ Capital Goods South 101 -
Korea
Total Holdings 57 (2021: 256,686 100.0
52)
UQ Unquoted investment.
ADR/ADS: American Depositary Receipts/Shares - are certificates that represent
shares in the relevant stock and are issued by a US bank. They are denominated
and pay dividends in US dollars.
H: H-Shares - shares issued by companies incorporated in the
People's Republic of China ('PRC') and listed on the Hong Kong Stock Exchange.
R: Red Chip Holdings - holdings in companies incorporated outside
the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities
by way of direct or indirect shareholding and/or representation on the board.
A: A-shares - shares that are denominated in Renminbi and traded
on the Shanghai and Shenzhen stock exchanges.
F: F-Shares - shares issued by companies incorporated in Thailand
that are available to foreign investors only. Thai laws have imposed
restrictions on foreign ownership of Thai companies so there is a
pre-determined limit of these shares. Voting rights are retained with these
shares.
Classification of Investments by Country/Sector
at 30 April
2022 2021
At At
Market % of Market % of
Value Value
£'000 Portfolio £'000 Portfolio
Australia
Energy 3,157 1.2 - -
Insurance 5,702 2.2 4,093 1.5
Materials 2,082 0.8 - -
10,941 4.2 4,093 1.5
China
Automobiles and Components 3,525 1.4 3,264 1.2
Capital Goods 6,004 2.3 3,602 1.3
Consumer Durables and Apparel 8,986 3.5 5,125 1.8
Food, Beverage and Tobacco 1,884 0.7 - -
Insurance 5,374 2.1 6,038 2.1
Materials 2,531 1.0 2,080 0.8
Media and Entertainment 23,803 9.2 34,736 12.5
Pharmaceuticals, Biotechnology and Life 1,801 0.7 - -
Sciences
Real Estate 976 0.4 - -
Retailing 20,604 8.1 20,404 7.4
Transportation 1,726 0.7 2,072 0.7
Utilities 2,561 1.0 3,383 1.2
79,775 31.1 80,704 29.0
Hong Kong
Automobiles and Components 2,126 0.8 2,357 0.8
Capital Goods 3,771 1.5 4,304 1.5
Consumer Durables and Apparel 5,262 2.0 4,719 1.7
Consumer Services 2,371 0.9 - -
Insurance 7,693 3.0 8,678 3.1
Real Estate 10,977 4.3 11,771 4.2
Transportation 1,409 0.5 6,728 2.4
33,609 13.0 38,557 13.7
India
Automobiles and Components 3,528 1.4 3,905 1.4
Banks 17,465 6.8 16,907 6.0
Capital Goods 4,229 1.6 5,253 1.9
Diversified Financials 4,372 1.7 4,514 1.6
Pharmaceuticals, Biotechnology and Life 4,830 1.9 4,789 1.7
Sciences
34,424 13.4 35,368 12.6
Indonesia
Automobiles and Components 8,111 3.2 4,328 1.6
Banks 6,278 2.4 3,321 1.2
Telecommunication Services 2,737 1.1 2,039 0.7
17,126 6.7 9,688 3.5
Ireland
Money Market Fund 846 0.3 - -
846 0.3 - -
Singapore
Banks 5,661 2.2 6,093 2.2
Consumer Services 1,237 0.5 1,777 0.6
6,898 2.7 7,870 2.8
South Korea
Automobiles and Components 4,578 1.8 6,715 2.4
Banks 1,710 0.7 2,617 0.9
Capital Goods 3,065 1.2 5,864 2.1
Insurance 3,364 1.3 3,268 1.2
Materials 6,495 2.5 7,893 2.8
Technology Hardware and Equipment 15,242 6.0 20,481 7.3
34,454 13.5 46,838 16.7
Taiwan
Food, Beverage and Tobacco 4,416 1.7 3,247 1.2
Semiconductors and Semiconductor Equipment 19,499 7.7 25,446 9.1
Technology Hardware and Equipment 9,707 3.8 22,452 8.1
33,622 13.2 51,145 18.4
Thailand
Banks 4,991 1.9 4,795 1.8
4,991 1.9 4,795 1.8
Total 256,686 100.0 279,058 100.0
Statement of Directors' Responsibilities
IN RESPECT OF THE PREPARATION OF THE ANNUAL FINANCIAL REPORT AND THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Financial Report and
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK accounting standards, and applicable law,
including FRS 102 The Financial Reporting Standard applicable in the UK and
Republic of Ireland.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
- use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that complies with that law and those
regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, which is
maintained by the Company's Manager. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the Annual Financial
Report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
- the Strategic Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties that they face.
We consider the Annual Financial Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy.
Signed on behalf of the Board of Directors
Neil Rogan
Chairman
1 August 2022
Income Statement
FOR THE YEARED 30 APRIL
2022 2021
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments held 9 - (20,854) (20,854) - 101,295 101,295
at fair value
(Losses)/gains on foreign exchange - (178) (178) - 643 643
Income 2 6,228 62 6,290 5,600 67 5,667
Investment management fee 3 (484) (1,453) (1,937) (465) (1,395) (1,860)
Other expenses 4 (612) (5) (617) (581) (6) (587)
Net return before finance costs 5,132 (22,428) (17,296) 4,554 100,604 105,158
and taxation
Finance costs 5 (11) (33) (44) (23) (68) (91)
Return on ordinary activities 5,121 (22,461) (17,340) 4,531 100,536 105,067
before taxation
Tax on ordinary activities 6 (652) (855) (1,507) (668) - (668)
Return on ordinary activities 4,469 (23,316) (18,847) 3,863 100,536 104,399
after taxation for the financial
year
Return per ordinary share 7 6.68p (34.87)p (28.19)p 5.78p 150.38p 156.16p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The return on
ordinary activities after taxation is the total comprehensive (loss)/income and
therefore no additional statement of other comprehensive income is presented.
The supplementary revenue and capital columns are presented for information
purposes in accordance with the Statement of Recommended Practice issued by the
Association of Investment Companies. All items in the above statement derive
from continuing operations of the Company. No operations were acquired or
discontinued in the year.
Statement of Changes in Equity
FOR THE YEARED 30 APRIL
Capital
Share Redemption Special Capital Revenue
Capital Reserve Reserve Reserve Reserve Total
(1) (1)
Notes £'000 £'000 £'000 £'000 £'000 £'000
At 30 April 2020 7,500 5,624 34,827 134,968 4,029 186,948
Return on ordinary - - - 100,536 3,863 104,399
activities
Dividends paid 8 - - - (6,066) (4,029) (10,095)
At 30 April 2021 7,500 5,624 34,827 229,438 3,863 281,252
Return on ordinary - - - (23,316) 4,469 (18,847)
activities
Dividends paid 8 - - - (3,308) (6,921) (10,229)
At 30 April 2022 7,500 5,624 34,827 202,814 1,411 252,176
(1) These reserves form the distributable reserves of the Company and may be
used to fund distributions by way of dividends.
Balance Sheet
AT 30 APRIL
2022 2021
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit or 9 256,686 279,058
loss
Current assets
Debtors 10 2,492 550
Cash and cash equivalents 738 4,584
3,230 5,134
Creditors: amounts falling due within one year 11 (7,047) (2,940)
Net current (liabilities)/assets (3,817) 2,194
Total assets less current (liabilities)/assets 252,869 281,252
Provision for deferred tax liabilities 12 (693) -
Net assets 252,176 281,252
Capital and reserves
Share capital 13 7,500 7,500
Other reserves:
Capital redemption reserve 14 5,624 5,624
Special reserve 14 34,827 34,827
Capital reserve 14 202,814 229,438
Revenue reserve 14 1,411 3,863
Shareholders' funds 252,176 281,252
Net asset value per ordinary share 15 377.21p 420.70p
The financial statements were approved and authorised for issue by the Board of
Directors on 1 August 2022.
Signed on behalf of the Board of Directors
Neil Rogan
Chairman
Notes to the Financial Statements
1. Accounting Policies
Accounting policies describe the Company's approach to recognising and
measuring transactions during the year and the position of the Company at the
year end.
A summary of the principal accounting policies, all of which have been
consistently applied throughout this and the preceding year is set out below:
(a) Basis of Preparation
(i) Accounting Standards applied
The financial statements have been prepared in accordance with applicable
United Kingdom Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice ('UK GAAP')), including FRS 102, and with the Statement of
Recommended Practice Financial Statements of Investment Trust Companies and
Venture Capital Trusts, issued by the Association of Investment Companies in
April 2021 ('SORP'). The financial statements are prepared on a going concern
basis.
As an investment fund the Company has the option, which it has taken, not to
present a cash flow statement as the following conditions have been met:
. substantially all investments are highly liquid;
. substantially all investments are carried at market value, and
. a statement of changes in equity is provided.
(ii) Going concern
The financial statements have been prepared on a going concern basis. The
Company's Articles of Association require that every three years the Directors
propose an ordinary resolution to release them from the obligation to wind up
the Company, or they must put forward proposals to wind up the Company.
Shareholders voted to release the Directors from the obligation to wind up the
Company at the 2019 AGM, and therefore the next resolution in respect of this
will be at the AGM in 2022. An assessment of the likelihood of the ordinary
resolution to release the Directors from the obligation to wind-up the Company
has been performed. This included taking account of the relative performance
against the benchmark over a period of ten years and after having made
enquiries, in the absence of unforeseen circumstances, the Directors have no
reason to believe that such a resolution will not receive shareholder approval.
The Directors performed an assessment of the Company's ability to meet its
liabilities as they fall due. In performing this assessment, the Directors took
into consideration the continuing uncertain economic outlook in the wake of the
Covid-19 pandemic and other geopolitical events including:
. the level of borrowings, cash balances and the diversified portfolio
of readily realisable securities which can be used to meet short-term funding
commitments, including repayment of the bank facility;
. the net current liability position of the Company, after the deduction
of drawn-down borrowings, which will be met through the renewal of the existing
credit facility or the sale of investments in order to repay any borrowings;
. the ability of the Company to meet all of its liabilities and ongoing
expenses from its assets;
. revenue and operating cost forecasts for the forthcoming year;
. the ability of third-party service providers to continue to provide
services; and
. potential downside scenarios including a fall in the valuation of the
investment portfolio or levels of investment income.
Based on this assessment, the Directors are satisfied that the Company has
adequate resources to continue in operational existence for at least 12 months
after signing the balance sheet and the financial statements have therefore
been prepared on a going concern basis.
2. Income
This note shows the income generated from the portfolio (investment assets) of
the Company and income received from any other source.
2022 2021
£'000 £'000
Income from investments:
Overseas dividends 5,848 4,995
Overseas special dividends 380 605
Total income 6,228 5,600
Special dividends of £62,000 were recognised in capital during the year (2021:
£67,000).
3. Investment Management Fee
This note shows the investment management fee due to the Manager which is
calculated and paid quarterly.
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 484 1,453 1,937 465 1,395 1,860
fee
Details of the investment management and secretarial agreement are given in the
Directors' Report in the Annual Financial Report.
At 30 April 2022, £461,000 (2021: £507,000) was accrued in respect of the
investment management fee.
4. Other Expenses
The other expenses, including those paid to Directors and the auditor, of the
Company are presented below; those paid to the Directors and the auditor are
separately identified.
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Directors' 137 - 137 122 - 122
remuneration (i)
Auditor's fees (ii):
- for audit of the 40 - 40 32 - 32
Company's
Annual Financial
Statements
Other administration 435 5 440 427 6 433
expenses (iii)
612 5 617 581 6 587
(i) Directors' fees authorised by the Articles of Association are £200,000
per annum. The Director's Remuneration Report in the Annual Financial Report
provides further information on Directors' fees.
(ii) Auditor's fees include out of pocket expenses but excludes VAT. The
VAT is included in other administration expenses.
(iii) Other administration expenses include:
* £13,000 (2021: £11,000) of employer's National Insurance payable on
Directors' remuneration. As at 30 April 2022, the amounts outstanding on
Directors' remuneration was £12,000 (2021: £9,000) and the amount
outstanding in respect of employer's National Insurance was £1,000 (2021: £
1,000).
* custodian transaction charges of £5,000 (2021: £6,000). These are
charged to capital.
* a separate fee paid to the Manager for secretarial and administrative
services which is subject to annual adjustment in line with the UK Retail
Price Index. During the year the Company paid £102,000 (2021: £98,000) for
these services.
5. Finance Costs
Finance costs arise on any borrowing the Company has utilised in the year. The
Company has a committed £20 million revolving credit facility (the 'bank
facility') (see note 11 for further details).
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Commitment fees due on 10 31 41 6 19 25
bank facility
Interest on bank 1 2 3 16 47 63
facility
Overdraft interest - - - 1 2 3
11 33 44 23 68 91
6. Taxation
As an investment trust the Company pays no tax on capital gains. The Company
suffers no tax on income arising on UK and certain overseas dividends. The
Company's tax charge arises from irrecoverable tax on overseas (generally
non-EU) dividends and Indian capital gains tax paid and provided for.
(a) Tax charge
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas tax 652 - 652 668 - 668
Indian capital gains tax - - 162 162 - - -
paid - note 6(d)
Indian capital gains tax - - 693 693 - - -
provision - note 6(d)
Tax charge for the year 652 855 1,507 668 - 668
The overseas tax charge consists of irrecoverable withholding tax.
(b) Reconciliation of current tax charge
2022 2021
£'000 £'000
Return on ordinary activities before taxation (17,340) 105,067
Theoretical tax at the current UK Corporation Tax rate of (3,295) 19,963
19% (2021: 19%)
Effects of:
- Non-taxable overseas dividends (1,109) (950)
- Non-taxable overseas special dividends (84) (128)
- Non-taxable losses/(gains) on investments 3,962 (19,246)
- Non-taxable losses/(gains) on foreign exchange 34 (122)
- Excess of allowable expenses over taxable income 491 482
- Disallowable expenses 1 1
- Overseas taxation 652 668
- Indian capital gains tax - paid 162 -
- Indian capital gains tax - provision - see (d) below 693 -
Tax charge for the year 1,507 668
Given the Company's status as an investment trust, and the intention to
continue meeting the conditions required to obtain the necessary approval in
the foreseeable future, the Company has not provided any UK corporation tax on
any realised or unrealised capital gains or losses arising on investments.
(c) Factors that may affect future tax changes
The Company has cumulative excess management expenses of £26,289,000 (2021: £
23,706,000) that are available to offset future taxable revenue.
A deferred tax asset of £6,572,000 (2021: £4,504,000) at 25% (2021: 19%) has
not been recognised in respect of these expenses since the Directors believe
that there will be no taxable profits in the future against which the deferred
tax assets can be offset.
The Finance Act 2021 increases the UK corporation tax rate from 19% to 25%
effective 1 April 2023. The Act received Royal Assent on 10 June 2021. Deferred
tax assets and liabilities on balance sheets prepared after the enactment of
the new tax rate must therefore be re-measured accordingly, so as a result the
deferred tax asset has been calculated at 25%.
(d) Indian capital gains tax
Capital gains arising from equity investments in Indian companies are subject
to Indian Capital Gains Tax Regulations. Consequently, the Company is subject
to both short and long term capital gains tax in India on the growth in value
of their investment portfolios.
Although this capital gains tax only becomes payable at the point at which the
underlying investments are sold and profits crystallised, the Company has made
a provision for this tax liability for the year ended 30 April 2022 (2021:
none). See note 12 for further details.
7. Return per Ordinary Share
Return per share is the amount of gain or loss generated for the financial year
divided by the weighted average number of ordinary shares in issue.
2022 2021
Pence £'000 Pence £'000
Return per ordinary share is
based on the following:
Revenue return after taxation 6.68 4,469 5.78 3,863
Capital return after taxation (34.87) (23,316) 150.38 100,536
Total return after taxation (28.19) (18,847) 156.16 104,399
2022 2021
£'000 £'000
Weighted average number of ordinary shares in issue 66,853,287 66,853,287
during the year
8. Dividends on Ordinary Shares
Dividends represent a return of income to shareholders for investing in the
Company's shares. These are determined by the Directors and paid twice a year.
2022 2021
Pence £'000 Pence £'000
Dividends recognised in the
year:
First interim dividend paid 7.70 5,148 6.70 4,479
Second interim dividend paid 7.60 5,081 8.40 5,616
15.30 10,229 15.10 10,095
Set out above are the total dividends paid in respect of the financial year,
which is the basis on which the requirements of Section 1158-1159 of the
Corporation Tax Act 2010 are considered. The revenue available for distribution
by way of dividend for the year is £4,469,000 (2021: £3,863,000).
9. Investments at Fair Value
The portfolio comprises investments which are predominantly listed and traded
on regulated stock exchanges. The investments of the Company are registered in
the name of the Company or in the name of nominees and held to the order of the
Company.
Gains and losses are either:
. realised, usually arising when investments are sold; or
. unrealised, being the difference from cost on those investments still
held at the year end.
2022 2021
£'000 £'000
Opening valuation 279,058 195,915
Movements in the year:
Purchases at cost 85,110 146,614
Sales (86,628) (164,766)
(Losses)/gains on investments in the year (20,854) 101,295
Closing valuation 256,686 279,058
Closing book cost 211,699 197,658
Closing investment holding gains 44,987 81,400
Closing valuation 256,686 279,058
The Company received £86,628,000 (2021: £164,766,000) from investments sold in
the year. The book cost of these investments when they were purchased was £
71,069,000 (2021: £131,425,000) realising a profit of £15,559,000 (2021: £
33,341,000) which when offset against the movement in closing investment
holding gains results in net losses on investments in the year of £20,854,000
(2021: net gains of £101,295,000). These investments have been revalued over
time and until they were sold any unrealised profits/losses were included in
the fair value of the investments.
The transaction costs included in gains on investments amount to £65,000 (2021:
£111,000) on purchases and £119,000 (2021: £227,000) for sales.
10. Debtors
Debtors are amounts which are due to the Company, such as monies due from
brokers for investments sold, income which has been earned (accrued) but not
yet received and any taxes that are recoverable.
2022 2021
£'000 £'000
Amounts due from brokers 1,746 -
Overseas withholding tax recoverable 163 237
VAT recoverable 16 21
Prepayments and accrued income 567 292
2,492 550
11. Creditors: amounts falling due within one year
Creditors are amounts which must be paid by the Company and they are all due
within 12 months of the balance sheet date.
The bank facility provides a specific amount of capital, up to £20 million,
over a specified period of time (364 days). Unlike a term loan, the revolving
nature of the bank facility allows the Company to drawdown, repay and re-draw
loans.
2022 2021
£'000 £'000
Bank facility 5,610 2,096
Amounts due to brokers 780 136
Accruals 657 708
7,047 2,940
The committed unsecured 364 day multi-currency revolving credit facility (the
'bank facility') with The Bank of New York Mellon, has an interest payable
based on the Adjusted Reference Rate (principally SOFR and SONIA respectively
in respect of loans drawn in USD and GBP) plus a margin for amounts drawn. Any
undrawn amounts under the bank facility attract a commitment fee of 0.2% (2021:
0.2%). The bank facility covenants are based on the lower of 25% of net asset
value and £20 million, renewable on 30 July 2022, and require total assets to
not fall below £80 million. At the year end, the bank facility drawn down was
in US dollars with a sterling equivalent of £5,610,000 (2021: £2,096,000).
12. Provision for deferred tax liabilities
The Company makes a deferred tax provision when a potential obligation exists
that will probably have to settle in cash, but the amount is estimated and only
becomes payable at the point at which the underlying investments are sold and
profits crystallised.
2022 2021
£'000 £'000
Provision for deferred Indian capital gains tax 693 -
693 -
13. Share Capital
Share capital represents the total number of shares in issue. Any dividends
declared will be paid on the shares in issue on the record date.
The Directors' Report in the Annual Financial Report sets out the share capital
structure, restrictions and voting rights.
Share capital represents the total number of shares in issue, including
treasury shares.
(a) Allotted, called-up and fully paid
2022 2021
£'000 £'000
Share capital:
Ordinary shares of 10p each 6,685 6,685
Treasury shares of 10p each 815 815
7,500 7,500
(b) Share movements
2022 2021
Ordinary Treasury Ordinary Treasury
number number number number
Number at start of year 66,853,287 8,146,594 66,853,287 8,146,594
Number at the end of the year 66,853,287 8,146,594 66,853,287 8,146,594
During the year the Company has not bought back any shares into treasury (2021:
nil shares bought back into treasury).
Since the year end and to the date of this Annual Financial Report, no shares
have been bought back or re-issued.
(c) Winding-up provisions
The Directors are obliged to convene a General Meeting ('GM') to consider a
special resolution to wind up the Company every third year from the date of the
AGM at which the Directors were released from such obligation. At the AGM in
2019 the Directors were released from their obligation to convene a GM and a
resolution to release the Directors from their obligation to convene a GM will
be put to shareholders at the AGM in 2022.
14. Reserves
This note explains the different reserves attributable to shareholders. The
aggregate of the reserves and share capital (see previous note) make up total
shareholders' funds.
The capital redemption reserve maintains the equity share capital arising from
the buy-back and cancellation of shares and is non-distributable. The special
reserve arose from the cancellation of the share premium account and is
available as a distributable reserve to fund any future tender offers and share
buybacks.
The capital reserve includes investment gains and losses, expenses allocated to
capital and special dividends received that are classified as capital in
nature. The revenue reserve reflects the income and expenses as shown in the
revenue column of the Income Statement. The capital and revenue reserves are
distributable by way of dividend. Dividends are first funded from available
revenue reserves and then funded from capital reserves at the date of the
dividend payment.
15. Net Asset Value
The Company's total net assets (total assets less total liabilities) are often
termed shareholders' funds and are converted into net asset value per ordinary
share by dividing by the number of shares in issue as at the reporting date.
The net asset values attributable to each share in accordance with the
Company's Articles are set out below.
2022 2021
Ordinary shareholders' funds £252,176,000 £281,252,000
Number of ordinary shares in issue, excluding treasury 66,853,287 66,853,287
shares
Net asset value per ordinary share 377.21p 420.70p
There is no dilution in this or the prior year and therefore no diluted net
asset value per ordinary share has been disclosed.
16. Financial Instruments
Financial instruments comprise the Company's investment portfolio, derivative
financial instruments (if the Company had any), as well as any cash,
borrowings, debtors and creditors. This note sets out the risks arising from
the Company's financial instruments in terms of the Company's exposure and
sensitivity, and any mitigation that the Manager or Board can take.
Risk Management Policies and Procedures
The Company's portfolio is managed in accordance with its investment objective,
which is set out in the Strategic Report in the Annual Financial Report. The
Strategic Report then proceeds to set out the Manager's investment process and
the Company's internal control and risk management systems as well as the
Company's principal risks and uncertainties. Risk management is an integral
part of the investment management process and this note expands on certain of
those risks in relation to the Company's financial instruments, including
market risk.
The accounting policies in note 1 include criteria for the recognition and the
basis of measurement applied for financial instruments. Note 1 also includes
the basis on which income and expenses arising from financial assets and
liabilities are recognised and measured. The Directors have delegated to the
Manager the responsibility for the day-to-day investment activities of the
Company as more fully described in the Strategic Report in the Annual Financial
Report.
As an investment trust the Company invests in equities and other investments
for the long-term so as to meet its investment objective and policies. In
pursuing its investment objective, the Company is exposed to a variety of risks
that could result in either a reduction in the Company's net assets or
a reduction of the profits available for dividends. The risks applicable to the
Company and the policies the Company used to manage these are summarised below
and have remained substantially unchanged for the two years under review.
16.1 Market Risk
Market risk arises from changes in the fair value or future cash flows of a
financial instrument because of movements in market prices. Market risk
comprises three types of risk: currency risk (16.1.1), interest rate risk
(16.1.2) and other price risk (16.1.3).
The Company's Manager assesses the Company's exposure when making each
investment decision, and monitors the overall level of market risk on the whole
of the investment portfolio on an ongoing basis. The Board meets at least
quarterly to assess risk and review investment performance, as disclosed in the
Board Responsibilities in the Annual Financial Report. Borrowing is used to
enhance returns, however, this will also increase the Company's exposure to
market risk and volatility.
16.1.1 Currency Risk
As nearly all of the Company's assets, liabilities and income are denominated
in currencies other than sterling, movements in exchange rates will affect the
sterling value of those items.
Management of the Currency Risk
The Manager monitors the Company's exposure to foreign currencies on a daily
basis and reports to the Board on a regular basis. With the exception of
borrowings in foreign currency, the Company does not normally hedge its
currency positions but may do so should the Portfolio Manager or the Board feel
this was appropriate. Contracts are limited to currencies and amounts
commensurate with the asset exposure.
Income denominated in foreign currencies is converted to sterling on receipt.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that income is accrued and received.
Foreign Currency Exposure
The fair values of the Company's monetary items that have currency exposure at
30 April are shown below. Where the Company's investments (which are not
monetary items) are priced in a foreign currency they have been included
separately in the analysis so as to show the overall level of exposure.
Year ended 30
April 2022
Foreign Investment
Debtors Creditors currency at fair
(due from (due to exposure value Total
net
brokers Cash and Overdrafts brokers on net through foreign
and cash and bank and monetary profit currency
dividends) equivalents facility accruals) items or loss exposure
Currency £'000 £'000 £'000 £'000 £'000 £'000 £'000
Australian dollar - - - - - 10,941 10,941
Chinese yuan - - - - - 14,990 14,990
Hong Kong dollar 239 - - (7) 232 93,178 93,410
Indian rupee - - - (693) (693) 25,802 25,109
Indonesian rupiah 697 - - - 697 17,126 17,823
Singapore dollar 423 - - - 423 6,898 7,321
South Korean won 859 - - (773) 86 34,453 34,539
Taiwan dollar 163 227 - - 390 33,622 34,012
Thai baht 81 - - - 81 4,991 5,072
US dollar - 488 (5,610) - (5,122) 14,685 9,563
2,462 715 (5,610) (1,473) (3,906) 256,686 252,780
Year ended 30
April 2021
Foreign Investment
Debtors Creditors currency at fair
(due from (due to exposure value Total net
brokers Cash and Overdrafts brokers on net through foreign
and cash and bank and monetary profit currency
dividends) equivalents facility accruals) items or loss exposure
Currency £'000 £'000 £'000 £'000 £'000 £'000 £'000
Australian dollar - - - - - 4,093 4,093
Chinese yuan 52 - - - 52 8,727 8,779
Hong Kong dollar - 136 - (136) - 88,775 88,775
Indian rupee - - - - - 26,925 26,925
Indonesian rupiah 16 - - (16) - 9,688 9,688
Singapore dollar 20 - - - 20 7,870 7,890
South Korean won 100 - - - 100 46,839 46,939
Taiwan dollar 237 - - - 237 51,145 51,382
Thai baht 85 - - - 85 4,795 4,880
US dollar - 4,448 (2,096) - 2,352 30,201 32,553
510 4,584 (2,096) (152) 2,846 279,058 281,904
The amounts shown are not representative of the exposure to risk during the
year, because the levels of foreign currency exposure change significantly
throughout the year.
Foreign Currency Sensitivity
The following table illustrates the sensitivity of the returns after taxation
for the year with respect to the Company's financial assets and liabilities.
If sterling had strengthened by the amounts shown in the second table below,
the effect on the assets and liabilities held in non-sterling currency would
have been as follows:
2022 2021
Total Total
Revenue Capital loss Revenue Capital loss
return return after return return after
tax tax
£'000 £'000 £'000 £'000 £'000 £'000
Australian dollar (4) (263) (267) - (74) (74)
Chinese yuan (22) (435) (457) (14) (140) (154)
Hong Kong dollar (32) (2,143) (2,175) (43) (3,640) (3,683)
Indian rupee 7 (387) (380) (4) (835) (839)
Indonesian rupiah (6) (446) (452) (1) (349) (350)
Singapore dollar (6) (137) (143) (7) (181) (188)
South Korean won (14) (447) (461) (29) (1,077) (1,106)
Taiwan dollar (22) (643) (665) (23) (1,125) (1,148)
Thai baht (2) (95) (97) (3) (149) (152)
US dollar (3) (239) (242) (7) (1,302) (1,309)
(104) (5,235) (5,339) (131) (8,872) (9,003)
If sterling had weakened by the same amounts, the effect would have been the
converse.
The following movements in the assumed exchange rates are used in the above
sensitivity analysis:
2022 2021
% %
£/Australian dollar +/-2.4 +/-1.8
£/Chinese yuan +/-2.9 +/-1.6
£/Hong Kong dollar +/-2.3 +/-4.1
£/Indian rupee +/-1.5 +/-3.1
£/Indonesian rupiah +/-2.5 +/-3.6
£/Singapore dollar +/-1.9 +/-2.3
£/South Korean won +/-1.3 +/-2.3
£/Taiwan dollar +/-1.9 +/-2.2
£/Thai baht +/-1.9 +/-3.1
£/US dollar +/-2.5 +/-4.0
These percentages have been determined based on the market volatility in
exchange rates during the year. The sensitivity analysis is based on the
Company's foreign currency financial instruments held at each balance sheet
date and takes account of forward foreign exchange contracts that offset the
effects of changes in currency exchange rates. The effect of the strengthening
or weakening of sterling against foreign currencies is calculated by reference
to the volatility of exchange rates during the year using one standard
deviation of currency fluctuations from the average exchange rate.
In the opinion of the Directors, the above sensitivity analyses are not
representative of the year as a whole since the level of foreign currency
exposure varies.
16.1.2 Interest Rate Risk
The Company is exposed to interest rate risk through income receivable on cash
deposits and interest payable on variable rate borrowings. When the Company has
cash balances, they are held in variable rate bank accounts yielding rates of
interest dependent on the base rate of the custodian, Bank of New York Mellon
(International) Limited.
The Company has a revolving credit facility (the 'bank facility') for which
details and year end drawn down amounts are shown in note 11. The Company uses
the facility when required at levels approved and monitored by the Board. At
the maximum possible gearing of £20 million, the effect of a 1% increase/
decrease in the interest rate would result in a decrease/increase to the
Company's total income of £200,000. At the year end, US dollars with a sterling
equivalent of £5,610,000 of the bank facility was drawn down (2021: £
2,096,000).
The Company also has available an uncommitted bank overdraft arrangement with
the custodian for settlement purposes. At the year end there was no overdrawn
amount (2021: £nil). Interest on the bank overdraft is payable at the
custodian's variable rate.
The Company's portfolio is not directly exposed to interest rate risk.
16.1.3 Other Price Risk
Other price risks (i.e. changes in market prices other than those arising from
interest rate risk or currency risk) may affect the value of the equity
investments, but it is the business of the Manager to manage the portfolio to
achieve the best possible return.
The Directors manage the market price risks inherent in the investment
portfolio by meeting regularly to monitor on a formal basis the Manager's
compliance with the Company's stated objectives and policies and to review
investment performance.
The Company's portfolio is the result of the Manager's investment process and
as a result is not wholly correlated with the Company's benchmark or the
markets in which the Company invests. The value of the portfolio will not move
in line with the markets but will move as a result of the performance of the
shares within the portfolio.
If the value of the portfolio rose or fell by 10% at the balance sheet date,
the profit after tax for the year would increase or decrease by £25.7 million
(2021: £27.9 million) respectively.
16.2 Liquidity Risk
This is the risk that the Company may encounter difficulty in meeting its
obligations associated with financial liabilities i.e. when realising assets or
raising finance to meet financial commitments.
A lack of liquidity in the portfolio may make it difficult for the Company to
realise assets at or near their purported value in the event of a forced sale.
This is minimised as the majority of the Company's investments comprise a
diversified portfolio of readily realisable securities which can be sold to
meet funding commitments as necessary, cash held and the bank facility provides
for additional funding flexibility. The financial liabilities of the Company at
the balance sheet date are shown in note 11.
16.3 Credit Risk
Credit risk comprises the potential failure by counterparties to deliver
securities which the Company has paid for, or to pay for securities which the
Company has delivered; it includes, but is not limited to: lost principal and
interest, disruption to cash flows or the failure to pay interest.
Credit risk is minimised by using:
(a) only approved counterparties, covering both brokers and deposit takers;
(b) a custodian that operates under BASEL III guidelines. The Board reviews
the custodian's annual, externally audited, service organisation controls
report and the Manager's management of the relationship with the custodian.
Following the appointment of a depositary, assets held at the custodian are
covered by the depositary's restitution obligation, accordingly the risk of
loss is remote; and
(c) the Invesco Liquidity Funds plc - US Dollar, a money market fund, which
is rated AAAm by Standard & Poor's and AAAmmf by Fitch.
Cash balances are limited to a maximum of 5% of net assets with the custodian,
2.5% of net assets with any other deposit taker and a maximum of 6% of net
assets in the Invesco Liquidity Funds plc. These limits are at the discretion
of the Board and are reviewed on a regular basis. As at the year end, the
sterling equivalent of £738,000 (2021: £4,584,000) was held at the custodian,
in addition a balance had been held in Invesco Liquidity Funds plc during the
year and the balance was £846,000 at the year end (2021: £nil).
17. Fair Value of Financial Assets and Financial Liabilities
'Fair value' in accounting terms is the amount at which an asset can be bought
or sold in a transaction between willing parties, i.e. a market-based,
independent measure of value. Under accounting standards there are three levels
of fair value based on whether there is an active market (Level 1) or, if not,
Levels 2 and 3 where other methods have been employed to establish a fair
value. This note sets out the aggregate amount of the portfolio in each level,
and why.
Financial assets and financial liabilities are either carried at their fair
value (investments), or at a reasonable approximation of their fair value. The
valuation techniques used by the Company are explained in the accounting policy
note. FRS 102 sets out three fair value levels for the fair value for the
hierarchy disclosures. Categorisation into a level is determined on the basis
of the lowest level input that is significant to the fair value measurement of
each relevant asset/liability.
The investments held by the Company at the year end are shown in the Annual
Financial Report. Except for two Level 2 and one Level 3 investments described
below, all of the Company's investments at the year end were deemed to be Level
1 with fair values for all based on unadjusted quoted prices in active markets
for identical assets.
Level 2 investments are investments for which inputs are other than quoted
prices included within Level 1 that are observable (i.e. developed using market
data). At the year end there were two Level 2 investments held with a total
fair value of £5,837,000 (2021: £846,000), comprising of Invesco Liquidity
Funds - US Dollar money market fund, valued at £846,000 (2021: £nil) and
Kasikornbank, valued at £4,991,000 (2021: £2,651,000 but classified as Level
1). This resulted in the transfer of £2,651,000 from Level 1 to Level 2 during
the year in respect of Kasikornbank due to the shares held being listed on the
foreign section of the Stock Exchange of Thailand (SET), which is considered to
be less active than the local market of the SET.
Except for the transfer to Level 2 as noted above, there have been no other
transfers or movements between fair value categories during the year.
Level 3 investments are investments for which inputs are unobservable (i.e. for
which market data is unavailable). Lime Co. was the only Level 3 investment in
the portfolio at the year end and was valued at £101,000 (2021: one investment:
Lime Co. valued at £103,000).
There have been no transfers or movements between fair value categories during
the year.
18. Capital Management
This note is designed to set out the Company's objectives, policies and
processes for managing its capital. This capital being funded by monies
invested in the Company by shareholders (both initial investment and retained
amount) and any borrowings by the Company.
The Company's total capital employed at 30 April 2022 was £257,786,000 (2021: £
283,348,000) comprising borrowings of £5,610,000 (2021: £2,096,000) and equity
share capital and other reserves of £252,176,000 (2021: £281,252,000).
The Company's total capital employed is managed to achieve the Company's
investment objective and investment policy as set out in the Annual Financial
Report. Borrowings may be used to provide gearing up to the lower of £20
million or 25% of net asset value. The Company's policies and processes for
managing capital were unchanged throughout the year and the preceding year.
The main risks to the Company's investments are shown in the Directors' Report
under the 'Principal and Emerging Risks and Uncertainties' section. These also
explain that the Company is able to gear and that gearing will amplify the
effect on equity of changes in the value of the portfolio.
The Board can also manage the capital structure directly since it has taken the
powers, which it is seeking to renew, to issue and buy-back shares and it also
determines dividend payments.
The Company is subject to externally imposed capital requirements with respect
to the obligation and ability to pay dividends by section 1158 Corporation Tax
Act 2010 and by the Companies Act 2006, respectively, and with respect to the
availability of the bank facility, by the terms imposed by the lender, details
of which are given in note 11. The Board regularly monitors, and the Company
has complied with, these externally imposed capital requirements.
19. Contingencies, Guarantees and Financial Commitments
Any liabilities the Company is committed to honour, and which are dependent on
future circumstances or events occurring, would be disclosed in this note if
any existed.
There were no contingencies, guarantees or other financial commitments of the
Company as at 30 April 2022 (2021: nil).
20. Related Party Transactions and Transactions with the Manager
A related party is a company or individual who has direct or indirect control
or who has significant influence over the Company. Under accounting standards,
the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors and their dependents as
related parties. The Directors' remuneration and interests have been disclosed
in the Annual Report. No other related parties have been identified.
Details of the Manager's services and fees are disclosed in the Director's
Report in the Annual Financial Report
21. Post Balance Sheet Events
Any significant events that occurred after the balance sheet date but before
the signing of the balance sheet will be shown here.
There are no significant events after the end of the reporting period requiring
disclosure.
22. 2022 Financial Information
The figures and financial information for the year ended 30 April 2022 are
extracted from the Company's annual financial statements for that year and do
not constitute statutory accounts. The Company's annual financial statements
for the year to 30 April 2022 have been audited but have not yet been delivered
to the Registrar of Companies. The Auditor's report on the 2022 annual
financial statements was i) unqualified, ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section 498
(2) or (3) of the Companies Act 2006
23. 2021 Financial Information
The figures and financial information for the year ended 30 April 2021 are
compiled from an extract of the published accounts for that year and do not
constitute statutory accounts. Those accounts have been delivered to the
Registrar of Companies. The Auditor's report on the 2021 annual financial
statements was (i) unqualified, (ii) did not include a reference to any matters
to which the auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006
24. Annual Financial Report
The Annual Report for the year-ended 30 April 2022 will be posted to
shareholders in August 2022 and will be available thereafter at
www.invesco.co.uk/invescoasia or from the Corporate Secretary at the Company's
correspondence address, 43-45 Portman Square, London W1H 6LY. A copy of the
Annual Financial Report will be submitted shortly to the National Storage
Mechanism ("NSM") and will be available for inspection at the NSM, which is
situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Notice of Annual General Meeting
THIS NOTICE OF ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION. If you are in any doubt as to what action to take, you should
consult your stockbroker, solicitor, accountant or other appropriate
independent professional adviser authorised under the Financial Services and
Markets Act 2000. If you have sold or otherwise transferred all your shares in
Invesco Asia Trust plc, please forward this document and the accompanying Form
of Proxy to the person through whom the sale or transfer was effected, for
transmission to the purchaser or transferee.
Notice is given that the Annual General Meeting of Invesco Asia Trust plc will
be held at 43-45 Portman Square, London W1H 6LY, on 8 September 2022 at 12 noon
for the following purposes:
Ordinary Business
To consider and, if thought fit, to pass the following resolutions all of which
will be proposed as ordinary resolutions:
1. To receive and consider the Annual Financial Report for the year ended
30 April 2022.
2. To approve the Company's Dividend Payment Policy. This is an advisory
vote.
3. To approve the Annual Statement and Report on Remuneration for the year
ended 30 April 2022.
4. To re-elect Neil Rogan as a Director of the Company.
5. To re-elect Vanessa Donegan as a Director of the Company.
6. To elect Myriam Madden as a Director of the Company.
7. To elect Sonya Huen Rogerson as a Director of the Company.
8. To re-appoint KPMG LLP as auditor of the Company.
9. To authorise the Audit Committee to determine the remuneration of the
auditor.
Special Business
To consider and, if thought fit, to pass the following resolutions of which
resolutions 10 and 11 will be proposed as ordinary resolutions and resolutions
12 to 14 as special resolutions:
Release from obligation to wind-up the Company
10. That:
in accordance with Article 147 of the Articles of Association of the Company,
the Directors of the Company be and they are hereby released from their
obligation pursuant to such Articles to convene a General Meeting of the
Company to be held on the business day falling on or within seven days prior to
the accounting reference date of the Company falling in 2023 at which a Special
Resolution will be proposed providing for the Company to be wound up on a
voluntary basis.
Authority to Allot Shares
11. That:
in substitution for any existing authority under section 551 of the Companies
Act 2006 (the 'Act') but without prejudice to the exercise of any such
authority prior to the date of this resolution the Directors of the Company be
generally and unconditionally authorised in accordance with section 551 of the
Act as amended from time to time prior to the date of the passing of this
resolution, to exercise all powers of the Company to allot shares and grant
rights to subscribe for, or convert any securities into, shares up to an
aggregate nominal amount (within the meaning of sections 551(3) and (6) of the
Act) of £668,532, this being 10% of the Company's issued ordinary share capital
as at 1 August 2022, such authority to expire at the conclusion of the next
Annual General Meeting of the Company or the date 15 months after the passing
of this resolution, whichever is the earlier unless the authority is renewed or
revoked at any other general meeting prior to such time, but so that this
authority shall allow the Company to make offers or agreements before the
expiry of this authority which would or might require shares to be allotted, or
rights to be granted, after such expiry as if the authority conferred by this
resolution had not expired.
Disapplication of Pre-emption Rights
12. That:
subject to the passing of resolution number 11 set out in the notice of this
meeting (the 'Section 551 Resolution') and in substitution for any existing
authority under sections 570 and 573 of the Companies Act 2006 (the 'Act') but
without prejudice to the exercise of any such authority prior to the date of
this resolution, the Directors be and are hereby empowered, in accordance with
sections 570 and 573 of the Act as amended from time to time prior to the date
of the passing of this resolution to allot equity securities (within the
meaning of section 560(1), (2) and (3) of the Act) for cash, either pursuant to
the authority given by the Section 551 Resolution or (if such allotment
constitutes the sale of relevant shares which, immediately before the sale,
were held by the Company as treasury shares) otherwise, as if section 561 of
the Act did not apply to any such allotment, provided that this power shall be
limited:
(a) to the allotment of equity securities in connection with a rights issue
in favour of all holders of a class of equity securities where the equity
securities attributable respectively to the interests of all holders of
securities of such class are either proportionate (as nearly as may be) to the
respective numbers of relevant equity securities held by them or are otherwise
allotted in accordance with the rights attaching to such equity securities
(subject in either case to such exclusions or other arrangements as the
Directors may deem necessary or expedient in relation to fractional
entitlements or legal, regulatory or practical problems under the laws of, or
the requirements of, any regulatory body or any stock exchange in any territory
or otherwise); and
(b) to the allotment (otherwise than pursuant to a rights issue) of equity
securities up to an aggregate nominal amount of £334,266, this being 5% of the
Company's issued share capital as at 1 August 2022 and this power shall expire
at the conclusion of the next Annual General Meeting of the Company or the date
15 months after the passing of this resolution, whichever is the earlier unless
the authority is renewed or revoked at any other general meeting prior to such
time, but so that this power shall allow the Company to make offers or
agreements before the expiry of this power which would or might require equity
securities to be allotted after such expiry as if the power conferred by this
Resolution had not expired; and so that words and expressions defined in or for
the purposes of Part 17 of the Act shall bear the same meanings in this
resolution.
Authority to Make Market Purchases of Shares
13. That:
the Company be generally and subject as hereinafter appears unconditionally
authorised in accordance with Section 701 of the Companies Act 2006 as amended
from time to time prior to the date of the passing of this resolution (the
'Act') to make market purchases (within the meaning of Section 693(4) of the
Act) of its issued ordinary shares of 10p each in the capital of the Company
('Shares').
PROVIDED ALWAYS THAT:
(i) the maximum number of Shares hereby authorised to be purchased shall
be 10,021,307 or 14.99% of shares in issue as at 1 August 2022;
(ii) the minimum price which may be paid for a Share shall be 10p;
(iii) the maximum price which may be paid for a Share must not be more than
the higher of: (i) 5% above the average of the mid-market values of the Shares
for the five business days before the purchase is made; and (ii) the higher of
the price of the last independent trade in the Shares and the highest then
current independent bid for the Shares on the London Stock Exchange;
(iv) any purchase of Shares will be made in the market for cash at prices
below the prevailing net asset value per Share (as determined by the
Directors);
(v) the authority hereby conferred shall expire at the conclusion of the
next Annual General Meeting of the Company, or the date 15 months after the
passing of this resolution, whichever is the earlier, unless the authority is
renewed or revoked at any other general meeting prior to such time;
(vi) the Company may make a contract to purchase Shares under the authority
hereby conferred prior to the expiry of such authority which will be executed
wholly or partly after the expiration of such authority and may make a purchase
of Shares pursuant to any such contract; and
(vii) any shares so purchased shall be cancelled or, if the Directors so
determine and subject to the provisions of Sections 724 to 731 of the Act and
any applicable regulations of the United Kingdom Listing Authority, be held (or
otherwise dealt with in accordance with Section 727 or 729 of the Act) as
treasury shares.
Period of Notice Required for General Meetings
14. That:
the period of notice required for general meetings of the Company
(other than AGMs) shall be not less than 14 days.
Dated this 1 August 2022
By order of the Board
Invesco Asset Management Limited
Corporate Company Secretary
END
(END) Dow Jones Newswires
August 02, 2022 02:00 ET (06:00 GMT)
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